- Lower turnover and profit due to unfavorable market conditions
- Crude production is being stabilized in Romania
- Significantly increased throughput per filling stations
- 74% increase in investments
Mariana Gheorghe, CEO of Petrom: “The results recorded in the first 6 months of the year are consistent with our forecast. The strong appreciation of the RON against the USD, but also to some extent lower crude oil prices adversely impacted in turnover and in profit.
The investment volume in the first six months remained at a high level and is 74% higher than the same period of the last year.
In the Exploration and Production business, although there was a decrease in total production due to lower gas production, we made progress to stabilize crude production in Romania which puts us on track to reach one of our most important objectives, to increase Romanian production again by 2010. This was the first step in securing the oil and gas production in Romania, given the fact that we operate mainly mature fields.
We continue the modernization process of the refineries and we estimate that they will become efficient once the investments of more than EUR 1 bn are finalized in 2011. Refining margin increased comparing to the same period last year, however refining sales volumes were lower due to the scheduled turnaround in Arpechim.
In Marketing, the throughput per filling station for the first six months increased to 1.44 mn liters, 38.5% higher than in the same period of 2006. Provided that we maintain the same sales growth pace in the second half, we will reach the strategic objective set for 2010, of 2.9 mn liters sold per year, before the estimated period.
Our restructuring process is on track in all business segments and we are continuing to strengthen our position as a leading oil and gas company in the region.”
Key performance indicators (lei mn)
Employees at the end of period
*the investments include increases of Petrom share participations
The financials are reviewed and prepared according to RAS; all the figures refer to Petrom SA unless otherwise stated
The company’s turnover for H1/07 decreased by 14% in comparison to the first half of 2006 mainly due to lower selling price and lower quantity sold in R&M segment (because of turnaround in Arpechim). This was partly offset by the higher turnover generated by the Gas Business.
The operating expenses decreased in H1 2007 by 7% under the influence of lower expenses with utilities (as a result of the renegotiation of the contracts), salaries and taxes (decrease as a result of the decrease of the number of employees according to the restructuring programme in place) and reduced provisions (due to improved credit risk management and less litigations in place). The operating expenses have been also influenced by the decrease of raw materials expenses due to lower crude import quantities and prices. This positive effect on operating expenses has been offset by higher expenses with third party related services and adjustments of the tangible and intangible assets.
The EBIT of the company amounted to RON 942 mn in H1/07, 47% below the RON 1,764 mn result recorded in H1/06, mainly due to the weaker EBIT generated by the E&P and the negative influence of the FX rate, as a result of declining oil price, production decline, lower delivered quantities and negative impact of the RON appreciation by 13%.
Approximately one third of the lost EBIT in H1/07 comes from the deviation in operating revenues. While the EBIT of the same period of the last year benefited from the operating revenues, mainly generated by the rigs sale, this was not the case in 2007.
The net profit decreased in H1/07 by 38% in comparison with the same period of 2006 as a consequence of the weaker operational result.
The total investments realised in H1 2007 amounted to RON 1,322 mn, exceeding by 74% the amount performed in H1 2006.
The investments in Q2/07 increased by 144% in comparison with the same period of the last year and by 40% in comparison with Q1/07.
The investments have been directed mostly to E&P – 65%, while the R&M business benefited from a 25% of the investments. The rest of 10% represents investments in Corporate (mainly Petrom Solutions), Gas and Chemicals.
The investments in E&P were more than two times higher than H1/06, showing Petrom’s engagement in both drilling and modernisation and efficiency programs.
Exploration and Production
- Domestic oil production is being stabilized
- Downhole technology – number of completed wells was 603, putting us on track to achieve our 2007 target
- Investments continue to be high in H1/07: RON 879 mn, more than two times higher than H1/06
The EBIT of the Exploration and Production business of Petrom SA decreased by 39% in the first half of 2007 over the same period of last year. This decrease is due to the declining oil price, production decline and the adverse impact of the local currency appreciation by 13% (revenues are USD benchmarked whereas the majority of the costs are in RON).
The domestic production cost of USD 15.98/boe was 21% higher compared to H1/06, mainly driven by the strengthening of the RON against the USD by 13%, lower production levels and higher salaries due to the collective labor agreement, service related costs also increased. The domestic production cost expressed in RON/boe increased only by 5%, a clear indication of the significant impact of RON appreciation.
Group oil and gas production decreased by 4.4 % to 36.05 mn boe [H1/06: 37.73 mn boe], due to the decline of the domestic production for oil by 6% and for gas by 3%. For H1/07 the total Group daily production was 199,000 boe/day, 4% down compared to H1/06 [208,000 boe/day].
Domestic oil production is now being stabilized since the beginning of the year as a result of production improvement programs but gas deliveries remain dependent on the pressure in the gas pipeline network. Total oil and gas production in Romania amounted to 35.25 mn boe in H1/07 [5% lower than H1/06] due to lower gas volumes resulting from the high pressure in the gas transportation network as well as from some technical difficulties.
The oil and gas production in Kazakhstan reached 802 thousand boe (or 4,400 boe/day), increasing by 10% over H1/06 volumes [4,000 boe/day].
The international E&P activities focused in Kazakhstan on new 3D geological models for the Aktas, Tasbulat and Turkmenoy fields. The upcoming drilling campaign, using these new models, is now ready to start in Q3/07. In Russia, the execution of the exploration work program has commenced at the end of Q2/07, when there were two exploration drilling rigs active in the Saratov area.
The Downhole Technology Modernization Program is on track. The successful pilot in the Ciuresti oil field showed a reduction of intervention frequencies from an average of 20 to 2.5 per well per year. Currently, 603 wells were completed. 5,000 wells will be completed until end of 2008, increasing production, lowering maintenance cost and reducing downtime.
In accordance with the exploration strategy, the 3D seismic surveys continued with success in H1/07. As part of the exploration drilling campaign, based on new technology (also including 3D information), 15 wells have been added in H1/07. The exploration drilling campaign is in progress and showed encouraging results.
Petrom SA spent RON 112 mn on exploration activity in H1/07, thereof RON 60 mn were expensed and RON 52 mn were capitalised. International E&P exploration expenditures amounted RON 47 mn.
E&P Petrom investments in Romania amounted to RON 879 mn, more than two times higher than H1/06 level. The step increase of investments shows Petrom’s engagement in both drilling and modernization and efficiency programs. The pace of drilling has increased and will be further accelerated. In H1/07, 75 production wells were drilled, 23% more than in H1/06.
Refining and Marketing
- Successful start up at Arpechim refinery after 6 weeks major turnaround
- Annual throughput per station of 2.9 mn liters; our strategic target for 2010 should be achieved ahead of schedule
- The non-oil business sales amounted in H1/07 RON 130.5 mn, 71% over the H1/06
- 398 filling stations under full agency system; in the second half of 2007 all Petrom filling stations are planned to be operated under this system
- 15 new filling stations opened in Q2; 32 new filling stations are under construction
The EBIT for R&M business recorded a negative value, slightly improved vs H1/06, mainly as a result of better margins but offset by lower refining sales due to turnaround in Arpechim. Both refineries benefited from increased margins and yield improvement, partly offset by the adverse inventory effects due to lower product prices at the end of half year. In Refining the main drivers which impacted the results in H1/07 were the increased diesel yields vs. H1/06 and Q1/07 and the turnaround in Arpechim.
In H1/2007, Petrom’s refineries processed a volume of crude oil of 2.87 mn tons, down by 16% yoy, due to the Arpechim scheduled turnaround which lasted approx. 6 weeks and high stock levels which limited the flexibility of production. Consequently, the utilisation rate was lower by 26% at Arpechim and 8% at Petrobrazi. The imported crude oil processed by the two refineries decreased by 22% in H1/07 [804 thousand tones] in comparison with H1/06 [1,033 thousand tones].
Petrochemical sales amounted to 318 thousand tons while the sales of special products (mainly petcoke) recorded a volume of 99.1 thousand tons.
In H1/07 Petrom started to blend biodiesel with diesel in order to start the selling of diesel with 2% biodiesel content as of July 1, 2007, as required.
Total marketing sales in H1/07 amounted to 2,066 thousand tons, lower by 22% yoy due to a reduction of export sales by 54% as a result of the Company’s decision to optimize the refining product mix and a higher demand on the domestic market
Domestic sales were by 5% higher than in H1/06, driven by a stronger demand in retail market. Retail sales reached 686 mn liters, by 21% higher compared to H1/06 [H1/06: 568mn liters]. Half year throughput per station improved by 38.5% to 1.44 million liters [H1/06: 1.04 million liters]. That value corresponds to an annual throughput per station of 2.9 mn liters. Thus our strategic target for 2010 should be achieved ahead of schedule, if we maintain the same sales growth pace.
Commercial domestic sales were lower by 3% against the level recorded in H1/06, amounting to 945 thousand tons, while exports were 577 thousand tons, from a previously 1,242 thousand tons achieved in H1/06 (-54%). The increase in domestic sales was due to the increased sales of white products. The non-oil business sales amounted in H1/07 to RON 130.5 mn, 71% over the H1/06 [RON 76.5 mn], due to portfolio reorganisation, purchasing process optimisation and saving consumables through the centralized supply.
Petrom sold through its subsidiaries 879 mn liters in H1/07 to the retail customers, out of which 68% accounted for retail international sales.
At the end of H1/07 a total of 398 filling stations were running under the full agency system, from a total of 463 filling stations, out of which 54 filling stations are operating under the Petrom V concept.
At international level, Petrom operates a retail network of 229 filling stations in Republic of Moldova, Bulgaria and Serbia; the number of filling stations increased by 17 filling stations (all in Moldova) in Q1/2007.
The restructuring of Petrom’s marketing activities is almost completed, with the retail stations being significantly more efficient after the change to the full agency system.
Capital investment in refining projects continued. The total amount of RON 204 mn was used for the state of the art control system and the high efficiency, low NOx burners for the crude unit in Arpechim. At the same time, we can highlight in Petrobrazi that the civil construction and equipment erection of the new HDS unit is ongoing to be ready for mechanical completion by end of this year. In order to deliver diesel with a content of 2% biofuel starting July, investments in blending systems and storage of biodiesel were completed in time. In Marketing, the investments were directed to the construction of new filling stations, to the reconstruction of the existing ones and to the Supply & Logistic projects.
The EBIT generated by the Gas business of Petrom SA in H1/07 amounted to RON 81 mn ,10% higher in comparison with H1/06.
The consolidated gas sales volume of Petrom Group amounted to 2,910 mn cm in H1/07, up by 12% compared to the same period of 2006. This was achieved despite the fact that the total natural gas consumption of Romania has dropped by 975 mn cm (-10.5%) in H1/07 compared to H1/06.
The consolidated gas sales to third parties reached 2,404 mn cm, by 16% higher than in the same period of the previous year, as a result of additional volumes purchased from third parties and reduced injection into storages due to the limited availability of storage volume in the Romanian storages. The latter is a result of the warm winter 2006/2007 which left substantial volumes not withdrawn in the storages. Petrom has injected in H1/07 a total volume of 57 mn cm of natural gas, the total volume stored at the end of June 2007 amounted to 153 mn cm.
The imported gas price for H1/07 was at USD 288/1,000 cm, while the regulated domestic gas price for producers was USD 170 /1,000 cm.
In H1/07 the Doljchim’s sales volumes increased by 20%, to 354 thousand tons [H1/06: 296 thousand tones], out of which export sales accounted approx. 55 %. Doljchim's products were exported mainly in the neighboring countries, such us Hungary, Bulgaria, Serbia but also in other countries like Slovakia, Austria, Macedonia, Italy, Spain and Turkey.
In H1/07, Doljchim concentrated its efforts in increasing the domestic market sales, which accounted approx. 45% (30% in H1/06). Favorable market conditions and improved selling tactics contributed to a significant rise of ammonium nitrate sales in H1/07 compared to H1/06 by 139%. Also urea and methanol domestic market sales were up, by 124% and 38%, respectively.
In H1/07, the investments in Doljchim, amounting to RON 4.65 mn, 50% up on H1/06, were directed mainly towards the works for environmental protection, health and safety as well as the plants safety of operation for fire risk.
The crude price, refining margins and the US dollar and Euro exchange rates are expected to remain volatile in 2007. The Romanian leu (RON) is expected to be significantly stronger than in 2006.
In E&P, domestic oil production decline is being arrested and the Company will continue the efforts to increase production and decrease production costs. The negative impact of the significant RON appreciation against the USD is expected to continue in the second half of 2007.
Petrom’s engagement in both drilling and modernization and efficiency programs will be further strengthened. The downhole technology modernization, the Anti Corrosion program and the Optimization of Surface Production Systems (OSPS) will be accelerated in the second half of 2007.
The price for domestic natural gas will increase to RON 470/1,000 cm starting with Q3/2007.
In the R&M segment, the efforts will be directed towards the modernization and the fulfilment of the compliance programs in both refineries.
A two week shutdown of Petrobrazi refinery is now scheduled for Q4/07 (originally planned for Q1/08), needed for installing the tie-ins at the diesel hydrotreater.
In Marketing, 2007 should see the entire network of filling stations completely run under the full agency concept and we aim to operate a number of 100 PetromV filling stations at the end of the year.